An explosion in the real estate market in LA over the last couple of years has had significant impacts on a lot of buyers. In some of the hottest markets, competition has been so fierce that buyers have resorted to making all-cash offers. That kind of offer is hard to beat if you have no other choice but to get a mortgage.
And the all-cash offer is just as its name suggests. The buyer is prepared to come to closing with a cashier’s check in hand and no lender involvement. Where the buyer’s cash comes from is of no concern to the seller.
The unfortunate thing for buyers who don’t have enough cash is that they aren’t on the same playing field as all-cash buyers. As a result, they lose out more often than not.
The Many Advantages of Buying with Cash
An all-cash buyer enjoys significant advantages over buyers with mortgages. First and foremost is being able to make a guaranteed offer. When you are buying with cash, your offer is not contingent upon a lender approving your mortgage. You have the cash and that’s that.
To the seller, this represents several things:
- Speed – All-cash real estate transactions are almost always faster because there are no banks involved. Cash sales can take place in a matter of weeks rather than months. Sellers like that.
- Confidence – An all-cash offer means a confident sale once a contract has been signed. There is no agreeing to an offer, signing a contract, and finding out five days later that the buyer cannot get a mortgage.
- Contingencies – Though there are exceptions to the rule, sellers are generally in a position of turning down all contingencies in exchange for an all-cash deal.
The opposite side of the contingency coin is a lower sale price. The combination of no contingencies and cash payment gives buyers leverage on pricing. It allows them to offer a lower price with the expectation that it will be accepted.
What It Means to Mortgaged Buyers
It is hard for buyers with mortgages to compete against all-cash buyers. But hard doesn’t mean impossible. There are ways to gain the upper hand against buyers who would come in with cash.
The first thing buyers should do is obtain mortgage approval before making an offer. And by this, we don’t mean a general preapproval you get online in under five minutes. We mean an actual, documented approval whereby the lender commits to loaning so much money. Pre Approval eliminates at least one of the advantages buyers have.
Mortgaged buyers can also:
- make an offer higher than the asking price
- make an offer with no contingencies
- offer to cover real estate agent commissions.
Of course, every real estate transaction is unique. All the suggestions we are offering here are general in nature. For any particular real estate deal you’re looking at, your agent is the most qualified person to advise you on how to proceed. Take advantage of your agent’s knowledge and expertise.
Cash Offers in a Buyer’s Market
In closing, we want to make it clear that all-cash buyers tend to have an advantage only in a seller’s market. In a buyer’s market, where supply outstrips demand, more houses mean more opportunities for everyone. All-cash buyers lose that edge because there is less competition for each listed property.
If the real estate market in your area is still competitive enough to give the edge to all-cash buyers, you may have to work a little harder to secure a deal with a mortgage. But don’t give up. Workable deals are out there.